National health care reform became a reality on March 30, 2010 by the passage of the “Patient Protection and Affordable Care Act” (P.L. 111-148) and the “Health Care and Education Reconciliation Act of 2010” (H.R. 4872). The legislation is designed to provide access to health insurance coverage for most Americans by imposing new responsibilities on employers, individuals and insurers, Medicare and Medicaid as well as states which must set up insurance exchanges to help individuals find coverage. Employers will have the choice to offer health coverage for employees or pay significant penalties. Although the bulk of the legislation is effective in 2014, this article focuses on several changes effective now or in the next few months that impact New Hampshire employers and their health plans. Although the legislation is over a thousand pages long, over the next several years federal agencies will issue guidance explaining the details of the legislation.
Changes Effective Immediately
Small Business Tax Credit
The legislation offers incentives for smaller employers to offer health coverage immediately by providing a federal tax credit to offset up to 35 percent of health insurance costs. In order to qualify, employers generally must have no more than 25 full-time equivalent employees during the year, the average annual full-time equivalent wages of an employee must be no more than $50,000, and the employer must contribute at least half of the premium. Generally, the wages or hours of business owners and partners are not counted in determining either the number of FTEs or the amount of average annual wages, and premiums paid on their behalf are not counted in determining the amount of the credit. The Internal Revenue Service has issued a news release (see www.irs.gov/newsroom) explaining how this new tax credit works.
Employees no longer taxed on adult children health coverage
The legislation simplified the Tax Code so that adult children who are receiving health care under a parent’s plan will no longer cause their parents to pay tax on the value of the health care received. Previously, in states like New Hampshire that mandated coverage of adult children, employers had to “impute income” to employees who covered children over the age of 18 who were not federal tax dependents. The change was effective March 30, 2010 and provides that no income will need to be imputed for a dependent child who has not attained age 27 by the end of tax year. In Notice 2010-38 the IRS issued guidance addressing a number of issues surrounding the tax treatment of adult children including interaction with section 125 cafeteria plans. No changes have been made to imputed income rules for children over the age of 26, divorced spouses, domestic partners, or civil union couples.
Retiree Health Coverage Subsidy
The legislation requires the federal Department of Health and Human Services to establish a $5 billion reinsurance program to reimburse retiree health care plans for a portion of the cost of providing health insurance coverage to early retirees (age 55 and over) and their eligible spouses, surviving spouses, and dependents. The program will reimburse the plan for 80 percent of the portion of the costs attributable to claims that exceed $15,000 but are $90,000 or less. Employers with retiree health programs should review eligibility for the program which opens on July 1, 2010 and ends on January 1, 2014 or, if earlier, upon the depletion of the $5 billion.
Changes Effective January 1, 2011
Dependent Coverage for Uninsured Young Adults
The legislation contains several changes that are effective for the first plan year beginning on or after the date that is six months following enactment of the legislation which is January 1, 2011 for calendar year plans. The legislation requires a group health plan to extend coverage to an employee’s children through age 26 even if the dependent is married. The legislation does not require coverage of the child’s children or spouse. On May 10, 2010 extensive guidance was issued concerning adult children coverage by several federal agencies which clarified a number of unanswered questions such as confirming that an employer cannot charge an extra premium for adult children. The NH Insurance Department has already introduced legislation to conform the state adult children coverage law to the federal legislation and make other changes to state insurance laws required by the legislation.
Other Changes Effective January 1, 2011
The legislation contains numerous provisions impacting the design of employer health plans some of which are effective January 1, 2011. In order to prevent employers from discriminating in their health insurance coverage, the legislation provides for new non-discrimination rules to be enacted similar to existing nondiscrimination rules that were previously applicable only to self-insured health plans. Employers who previously utilized plan designs with different coverages for highly-compensated employees will now need to closely examine their plan designs and possibly revise them for the next plan year.
Group health plans will no longer be able to impose lifetime or restrictive annual limits on benefits under the plan. Group health plans will also not be able to impose pre-existing condition exclusions on children under age 19. The legislation establishes detailed new claims procedures for both internal and external appeals and requires that employees continue to receive coverage during the appeal process. Coverage during the appeals process could require employers and insurers to pay for scheduled procedures and then attempt to recapture the cost if the employee later loses the appeal. Lastly, certain preventive care benefits and immunizations will no longer be subject to deductibles and cost-sharing.
Employers need to start familiarizing themselves about the potential benefits of the health care legislation as well as the new plan design requirements that start to become effective January 1, 2010. In years after 2011 as more of the new legislation becomes effective, employers will need to stay tuned as federal agencies issue guidance about the new requirements.